China's Schuss for Olympic Gold

China's Schuss for Olympic Gold May Boost Skimaker Quiksilver2006-02-09 17:43 (New York)
By Gregory Viscusi and Robert Delaney Feb. 10 (Bloomberg) -- The world's biggest skimakers haveseen the future, and it begins at places like Nanshan Ski Resortin China, where the snow is man-made and each of the 12 runslasts less than a minute. Nanshan and China's 204 other ski areas may become the newEl Dorado for Quiksilver Inc., owner of Skis Rossignol, and AmerSports Oyj, whose brands include Atomic and Salomon. Sales ofski gear have stalled in Europe and the U.S. ``China has all the ingredients: mountains, snow, people,and economic enrichment,'' says Jean-Francois Gautier, 51,president of Skis Rossignol, which is based in Voiron, France.``It would be a big mistake not to be there.'' The Winter Olympics opening today in Turin, Italy, may giveChina its first skiing gold medals, helping Quiksilver and itscompetitors to lure more of the country's 1.3 billion people tothe slopes. Skis Rossignol's local agent last month sponsoredthe 2006 Youth Cup slalom competition near Beijing to piqueinterest in the sport ahead of the games. The number of Chinese who went skiing last year rose to 3million from 300,000 in 2000, as economic growth created amiddle class with money to spend on leisure. Disposable incomein urban areas, home to two-fifths of the population, rose 9.6percent in real terms in 2005 to 10,493 yuan ($1,301) a person. ``Things move fast in China,'' says Maurizio Di Trani, 43,head of marketing at Montebelluna, Italy-based Tecnica SpA,which makes ski boots under the Nordica, Tecnica and Dolomitebrands. ``There's such energy and thirst for new experiences.''
Distant Mountains
For now, that appetite hasn't translated into booming salesof equipment. China remains a tiny part of the $7 billion skiindustry, with the Beijing-based China Ski Association reportingthat only 10,000 pairs of skis were sold in the country lastyear. That's 3 percent of the 350,000 pairs purchased in France. Skiing won't take off in China until investors improve itsresorts, especially in the mountains near Harbin, on thenortheastern border with Russia, says Michael Schineis,president of Atomic, the world's largest skimaker. The Harbin Yabuli Ski Resort, China's biggest, is 120kilometers (75 miles) from Harbin, itself a two-hour flight fromShanghai. Opened in 1996 for the third Asian Winter Games, itshighest peak is 1,000 meters (3,281 feet), compared with 350meters at Nanshan. ``They ski on hills and the only real mountains aredifficult to get to,'' says Eric Guilpart, director of marketingat Paris-based Compagnie des Alpes, Europe's largest manager ofski areas, including the Chamonix resorts in France. ``It's notthe sort of quality we look for.''
Hunting for Opportunities
Other companies are looking for properties in China. ``We are surveying the country for opportunities,'' saysTim McNulty, a spokesman for Vancouver-based Intrawest Corp.,which manages Whistler in British Columbia. Intrawest is thelargest ski resort manager in North America. Triggering a boom in skiing is just a matter of marketing,says Ray Chen, director of International Sports Marketing Ltd.'sChina division in Shanghai. People who whet their appetites onthe small slopes near Beijing will eventually be attracted tobigger ski areas further away. ``Incomes are rising and many Chinese tourists have startedtraveling to tropical locations for their holidays,'' Chen says.``There's no reason more of them won't want to go north, whereskiing conditions are ideal.'' The challenge is getting Chinese who've tried skiing tokeep going back, says Remigio Brunelli, who has representedTecnica in China for the past three years. People in China oftenski in city clothes, even suits and ties, he says.
Olympic Fever
Equipment makers may get help from the Chinese government.Boosting the popularity of winter sports is an important part ofChina's Olympic sports strategy, says Duan Shijie, a deputydirector of the General Administration of Sport in Beijing. China is sending 76 athletes to Turin, the country'sbiggest team since attending its first Winter Games in 1980 atLake Placid, New York. Li Nana and Guo Xinxin won gold andbronze in aerials at the world freestyle skiing championshipslast March in Finland, fanning hopes for victories in Turin. Olympic fever is building as Beijing undergoes a $160billion transformation before it hosts the 2008 Summer Games. The ski industry is pinning its hopes on China, the world'sfastest-growing major economy, because Europe and North Americahave reached limits in terms of people who have access tomountains and can afford the sport. ``We have to go after new frontiers because demographics inEurope and the U.S. don't allow for much growth,'' says RichardProthet, 57, Skis Rossignol's head of exports. ``The explosionof demand in China opens up enormous potential.''
European Stagnation
In Europe, which accounts for 60 percent of the ski market,2.5 million to 2.8 million skis are sold each year, depending onthe quality of the snow, says Klaus Hotter, Head NV's managingdirector of winter sports in Kennelbach, Austria. The number ofskiers peaked a decade ago at about 10 percent of the populationin countries such as Germany, France and Italy. Sales of ski equipment and clothing in the U.S. have beenstuck at $2.2 billion for the past five years, says AliciaAllen, a spokeswoman for SnowSport Industries America, anindustry group in McLean, Virginia. The number of skis sold hasdeclined from a peak of 1 million in 1997 to 670,000 last year.Sales of snowboards fell for the first time last year, dropping3 percent to 489,000. ``There are just so many other things to compete withpeople's time and money,'' Allen says, citing the $286 averageprice of a pair of skis in the U.S. A day of skiing costs $81 atVail in Colorado and 31 euros ($37) at Sestriere in Italy, whichwill host this year's Olympic downhill races. A Saturday orSunday skiing at Nanshan near Beijing is 360 yuan ($44.70).
Japanese Slump
In Japan, skiing has fallen out of fashion, says Jean-LucDiard, president of Salomon, a unit of Helsinki-based AmerSports. Sales of skis plunged to 350,000 last year from 2.8million 10 years ago, he says. Snowboard sales fell to 400,000from 1 million in 2000. As demand weakens, competition is intensifying, drivingdown prices. A ski that cost 300 euros five years ago now costs250 euros and comes with its binding attached, says Diard, 47. ``Most ski companies are losing money or just breakingeven,'' he says. ``It's not a good business to be in.'' Those pressures sparked an industry shakeup last year, whenSalomon and Skis Rossignol changed hands. In March, the founding family of Skis Rossignol agreed tosell the 50-year-old French company to Quiksilver for 241million euros. Skis Rossignol posted a net loss of 25 millioneuros in the fiscal year ended March 31.
Quiksilver, Amer
The shares of Huntington Beach, California-based Quiksilverdropped 19 percent from the day before the Salomon purchase wasannounced, trading for $13.37 on Feb. 8 in New York. The stockfell as Quiksilver reported higher-than-expected interestexpenses and lost market share to Abercrombie & Fitch Co.'sHollister stores. Amer in May agreed to buy Adidas-Salomon AG's Salomonwinter-sports unit for 485 million euros to add another line ofskis to Atomic. Amer also makes Wilson tennis rackets and golfclubs. The company's shares have risen 29 percent to 16.56 eurosin Helsinki since the last trading day before the agreement, asAmer cut jobs and boosted marketing while integrating Salomon. Most of the world's seven largest skimakers, all based inEurope, have closed factories in France and Austria and movedproduction to countries such as Romania to slash costs. Theyhaven't opened factories in China because the bulk of theircustomers and raw materials, such as poplar and beech wood, arein Europe, Head's Hotter says.
Finding Balance
Chinese companies haven't shown much interest in gettinginto skis because there's not enough volume to offer economiesof scale, Skis Rossignol's Prothet says. There are signs sporting goods stores and resorts in Chinaare ready to invest in new equipment to replace the secondhandgear from European and Japanese resorts they often rent out. After a decade of prospecting in China, Prothet says he gothis first big order for 1,300 pairs of skis last year from arental company at Beijing Ski Dome, an indoor ski mountain.Atomic sold 1,000 pairs of skis last year, double the previousyear's tally, says William Yan, 43, the company's Chinese agent. Sales to individuals may follow. Mao Fei, a softwareengineer from Beijing, says he'll buy his own snowboard if hemanages to find his balance. On his first day skiing at Nanshan, Mao, 27, spent most ofhis time falling down on the beginner slope. He decided to tryout the sport after reading www.lvye.org, a Chinese-language Website featuring reviews of outdoor and extreme sports. ``It looked like a lot of fun online, so a few friends andI got together to try it out,'' he says.
--With reporting by Yanping Li in Beijing. Editor: Pozsgay(wsm/sgw)